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If you are a homeowner who would like to release some of the equity tied up in their home, Raeside Chisholm can help. We advise on the legal aspects of releasing the value tied up in your home and can refer you to financial advisors who can fully discuss the various options available to you, as well as dealing with the whole application process.

Equity Release in Scotland

Equity release in the UK is now fully regulated. The market for home equity release is regulated by the FCA (Financial Conduct Authority). In addition, the Equity Release Council is a voluntary body to which the majority of equity release lenders subscribe. The Equity Release Council Code of Conduct set strict criteria to which members must adhere. This Code sets out place safeguards for borrowers, ensuring that equity release products and services can be used with confidence.

The Equity Release Council Code of Conduct states that homeowners are guaranteed the right to remain living in the property until death or until they enter long-term care. There is also a 'No Negative Equity' guarantee which ensures that the amount to be borrowed can never exceed the value of the property of the home itself – and, no debt can be left behind for the descendants of the borrower (or more accurately, the beneficiaries of their will). While not authorised to provide financial advice, we do have a wealth of expertise in advising on the legal aspects of equity release in Scotland.

Equity release is a useful way to realise capital for a number of reasons, but there are some factors which should be taken into consideration when deciding whether or not it's right for you. More and more of us are living longer into out retirement years. As such, we may, in time, require to source additional capital if our pensions and savings are not sufficient. For most of us, our biggest asset is our home. Releasing some of the equity tied up in the value of our home can be an ideal way to make our golden years more comfortable. In 2010, UK Homeowners released £800m of equity from their homes. In 2013, the amount of equity released increased to over £1bn.

What is Equity?

Equity in the context of your home is the current market value of your house, less any debts which are secured against it. So, a home with a market value of £100,000 which has £25,000 left on the mortgage and £10,000 of loans secured against it has 'equity' of £65,000. Thus, there is £65,000 of equity which can be released.

Equity can be released in the form of a tax-free lump sum, or it can provide a regular income. It can also be used as a reserve to secure lending against. How much can be released, and the purposes for which it can be released depends on the value of your home, your age, and the type of equity release plan you choose.

Types of Equity Release

There are two types of equity release plan available in the UK. Each has its own unique features. Raeside Chisholm can advise on the right plan for your circumstances.

The most common type of equity release plan is a Lifetime Mortgage. Alternatively, homeowners can choose a Home Reversion plan.

Lifetime Mortgages

Lifetime mortgages are similar to normal mortgages but without one crucial difference. Rather than making repayments during their lifetime, the cost of repaying the released equity is met from the deceased's estate. With a lifetime mortgage the equity sum can be taken as one tax-free lump sum or as a series of scheduled payments. If there is anything left in the estate after the lifetime mortgage has been repaid, this is distributed according to the deceased's will, if one exists. These types of equity release plan are available to those over 55.

Home reversion plans

Home reversion plans, on the other hand, transfer ownership of the home to the lender. The borrower (the person releasing the equity) retains the right to live there until death, at which time title (legal ownership) to the home transfers to the lender. In most cases, there is nothing left to the deceased's estate. There are home reversion plans which allow you to borrow against some of the value rather than the whole. This type of plan is available to the over 65's

What are the benefits of equity release?

  • Tax-free lump sum or steady regular income
  • Reduction in Inheritance Tax payable from your estate
  • The 'No Negative Equity' and continued rights of residence guarantee
  • You can remain in the property

Downsides of equity release:

  • The amount you leave to your family after death is reduced
  • It can affect some benefits you receive from the state
  • It is more costly than selling your property outright – a lifetime mortgage can cost four times as much the amount borrowed after 20 years. Some home reversion schemes can exchange 70% of the home's value for just a 20% advance.

Can I release equity?

All lender will use certain criteria to decide who can release the equity in their homes. Lifetime mortgages are available to those over 55, while home reversion plans are available to those over 65. You can take out some lifetime mortgages from the age of 55, but home reversions are available only to people aged 65 or older. Some enhanced products offer more favourable terms if you're a smoker or have health problems that could decrease your life expectancy.

The total amount you can borrow depends on your age – generally, the older you are, the more you can borrow. Some lenders will offer minimum loan amounts, and there may also be a minimum value requirement attached to your house. In most cases, your house will have to be worth more than £70,000.

There are alternative means of raising finance through your home, such as remortgaging.

Contact our Equity Release Solicitor in Glasgow, Kay Barr

If you would like more information on the legal aspects of equity release, speak to one of the best conveyancing lawyers in Glasgow today. Please complete our online enquiry form or contact us on 0141 248 3456.

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